A huge drop in the mortgage market caused developers in Prague to sell only 550 flats in the third quarter of this year.
For the first three quarters of this year, sales have so far reached 2,550 and according to current trends, it looks like only around 3,000 flats will be sold in Prague for the whole year. Compared to last year’s record year, when developers sold 7,450 new flats, this is a significant drop.
The latest data on the Prague residential real estate market was published in a joint analysis by the development companies Central Group, Trigema and Skanska Residential.
“Year-on-year sales fell by sixty percent and quarter-on-quarter they went down by forty-three percent. This is the biggest decline in the time we have been tracking residential market data. Those interested in buying through a mortgage have almost completely disappeared from the market,” says Marcel Soural, owner of investment and development group Trigema.
Developers refer to the current drop in sales and demand as pent-up demand and believe it will start to return next year. “This is mainly due to the mood in society. People are putting off buying property not because they can't afford it or are impoverished, but rather they are waiting to see what happens.”
“Politicians are talking about fear of winter, and people are therefore curbing their appetite, pulling back and waiting to see how winter turns out,” Soural said, referring to the consumer confidence index, which, according to the Czech Statistical Office, is the lowest since 2003.
According to Dusan Kunovský, owner of Central Group, a slight market recovery could come as early as next spring. However, cheaper mortgages will bring a major boost in demand. “We expect rates to return to the three per cent level in 2024," Kunovský says. He also believes that supply will not increase substantially because of the delayed demand. Developers simply will not find it meaningful to place large new projects on the frozen market and will wait until demand picks up.”
There are currently 4,700 flats for sale in Prague with a total value of CZK 45.5 billion, a year-on-year increase of 71 per cent. However, Kunovský said that in the next period the supply will stabilise somewhere below 4,000 flats.
It is the low supply, which will continue to be slightly limited, and the constantly rising costs that will not allow the prices of new flats to fall. “Projects will be postponed rather than go down in price. Costs have risen so much that cheapening does not make sense,” predicts Kunovský.
Current figures also show that new flats in Prague are not getting cheaper. Although sales prices rose by 17 percent year-on-year, the quarter-on-quarter increase did not exceed two percent. The average price of flats sold by developers in the third quarter reached CZK 147,884 per square meter and the average price of flats on offer at the end of September was CZK 154,181 per square meter.
“Of all the projects across the market, eighty per cent of the supply saw no change in price, ten per cent increased and the rest were reduced. This shows that prices are not falling, or if they are falling, it is perhaps due to pressure on the investor, who has to deal with financing quickly, or due to the shortcomings of the project," says Petr Michálek, chairman of the board of Skanska Residential.
According to developers, prices of new Prague apartments will continue to stagnate. The situation is slightly different for older flats. There, a quarter-on-quarter price decline of 1.9 percent is already visible. Year-on-year, however, prices are still 1.8 percent higher. The number of older flats on offer has increased by fifty-nine per cent compared to 2021.
However, sellers are likely to encounter weak demand here as well. “Price reductions will therefore occur mainly on the secondary market. The trading premium caused by the historical price development is higher there than the margin on new construction, and the room for price decline is higher there,” explains Soural.
For older flats, their price will also be influenced by the decline in demand for less energy-efficient flats, which results from the current energy situation.